Required information
"Morning Sky, Inc. (MSI), manufactures and sells computer games.
The company has several product lines based on the age range of the
target market. MSI sells both individual games as well as packaged
sets. All games are in CD format, and some utilize accessories such
as steering wheels, electronic tablets, and hand controls. To date,
MSI has developed and manufactured all the CDs itself as well as
the accessories and packaging for all of its
products.
The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability."
MSI is considering outsourcing the production of the handheld
control module used with some of its products. The company has
received a bid from Monte Legend Co. (MLC) to produce 23,000 units
of the module per year for $24.00 each. The following information
pertains to MSI’s production of the control modules:
Direct materials | $ | 13 |
Direct labor | 4 | |
Variable manufacturing overhead | 6 | |
Fixed manufacturing overhead | 4 | |
Total cost per unit | $ | 27 |
MSI has determined that it could eliminate all variable costs if
the control modules were produced externally, but none of the fixed
overhead is avoidable. At this time, MSI has no specific use in
mind for the space that is currently dedicated to the control
module production.
Required:
1. Compute the difference in cost between making and
buying the control module.
Difference in cost ________
2. Should MSI buy the modules from MLC or continue to make them?
3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $45,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.
Difference in cost ________
3-b. Does this change your recommendation to MSI?
1 | ||||
Per unit | Total 23000 units | |||
Make | Buy | Make | Buy | |
Direct materials | 13 | 299000 | ||
Direct labor | 4 | 92000 | ||
Variable manufacturing overhead | 6 | 138000 | ||
Purchase cost | 24 | 552000 | ||
Total | 529000 | 552000 | ||
Difference in cost = $23000 (529000-552000) | ||||
2 | ||||
Continue to make them | ||||
3a | ||||
Make | Buy | |||
Total cost | 529000 | 552000 | ||
Opportunity cost | 45000 | |||
Total relevant cost | 574000 | 552000 | ||
Difference in cost = $22000 (574000-552000) | ||||
3b | ||||
Yes, now the recommendation is Buy |
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product...
Required information The following information applies to the questions displayed below. Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market, MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date. MSI has developed and manufactured all the CDs itself as well as the accessories...
Required information [The following information applies to the questions displayed below.) Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories...
W Required information The following information applies to the questions displayed below) Morning Sky, Inc (MSI), manufactures and sell computer games The company has several product lines based on the age range of the target market, MSI sels both individual games as well as packaged sets. Al games are in CD format, and some utilize accessories such as Steering Wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured I the CDs itself as well as the...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products. The gaming...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products. The gaming...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products. The...
Chapter 7 Assignment i Saved Required information [The following information applies to the questions displayed below.) Part 2 of 4 Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured...
Required information E7-6 through E7-10. [The following information applies to the questions displayed below.) Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well...
Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products. The gaming market has...
Check my work Required information [The following information applies to the questions displayed below.) points Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as...